The People of America's Oil and Natural Gas Indusry

Bunk on Oil Issues

Mark Green

Mark Green
Posted March 29, 2012

Normally, we don’t bother with blog posts from the Center for American Progress on oil issues because, to borrow from an old saying, there’s no point in fact-checking someone who puts out propaganda by the barrel.  But since this post yesterday sought to “debunk” our “claims,” let’s have a look at CAP’s. Warning: These point/counterpoint, counter/counterpoint things can get a little long.

From CAP:

CLAIM: “More domestic production is critical to putting downward pressure on gasoline prices — supply matters.” – Jack Gerard, American Petroleum Institute President and CEO, March 26, 2012

TRUTH: To test whether more U.S. domestic production would lower gasoline prices, the Associated Press just completed an exhaustive analysis of 36 years of monthly U.S. oil production and gasoline price data. AP found that there is:

“No statistical correlation between how much oil comes out of U.S. wells and the price at the pump. If more domestic oil drilling worked as politicians say, you’d now be paying about $2 a gallon for gasoline. Instead, you’re paying the highest prices ever for March.”

Actual Truth: First off, the U.S. is the third-largest producer of oil in the world, so it would defy the laws of economics if there was zero correlation between “how much oil comes out of U.S. wells and the price at the pump.” More on that here. But don’t take our word for it – here are some thoughts from others:

William O’Keefe, the Marshall Institute: “…a policy of NO and a self imposed moratorium on increased exploration has probably resulted in hundreds of thousands of barrels or more not being produced. Adding those unproduced barrels to the current global supply would put downward pressure on crude oil prices which translate into to lower gasoline prices. Instead, there has been a policy of NO to the eastern Gulf of Mexico, NO to offshore drilling, NO to Alaska’s coastal plain, and NO to Keystone XL. With a more enlightened energy policy our oil production over the course of this decade could increase by a million barrels a day or more. That is not trivial.”

Geoff Styles, energy analyst: “Traders have to think about how prices are really set, and they understand that it's the interaction of the last few million barrels per day of supply, demand and spare capacity that really count, along with inventories. An extra million or two barrels per day – a quantity of which North America is certainly capable – can make a huge difference in oil prices.”

Sen. Chuck Schumer and the White House also agree that signals and supply matters.

Back to CAP:

CLAIM: “Opposition to higher energy taxes is rising among the public. A recent ‘What is America Thinking on Energy Issues’ poll showed that 76 percent of voters think that higher energy taxes could equal higher gas prices.” – Jack Gerard, API President and CEO, March 26, 2012

TRUTH: A Center for American Progress Action Fund poll conducted March 10-13, 2012 by Hart Research provided respondents with fourteen policy options asked which “would help a lot to address the issue of gasoline?”  The following option was chosen by 55 percent of the respondents:

“Repeal the four billion dollars per year in federal subsidies that currently are given to the oil companies, and use that money instead to fund investments that will make us less dependent on oil.”

Another 22 percent said that this proposal “would help somewhat.”  The combined totals finished highest among all the options.

Actual Truth:  First of all, CAP’s response is a total non-sequitur. People can believe that higher energy taxes could equal higher gas prices and simultaneously believe that reducing oil use is needed to “address the issue of gasoline.” Second of all, this is a bit of a “garbage-in, garbage-out” question because oil companies don’t get subsidies. Here is a chart from EIA data:

Nor does the industry get tax credits (which reduce taxes dollar for dollar) or grants from the government. They get tax deductions for business investments that will generate tax revenues in the future. Unlike the case of credits or grants, the government will still be paid the full amount of tax owed on our operations. Which means the taxpayer is getting every dollar that’s owed. What the president is proposing is to front-load the tax collection, so that any increases in current collections come at the expense of future taxpayers.

And lastly, oil and natural gas companies are the largest investors in technologies that reduce greenhouse gases. So perhaps this question should be re-phrased: “Do you support the government taking private industry investments in new energy technologies so that the state can direct such research based on political whim?”

Back to CAP:

CLAIM: “API represents more than 500 oil and natural gas companies…that…supports 9.2 million U.S. jobs.” – Jack Gerard, API President and CEO, March 26, 2012

TRUTH: Using API’s NAICS criteria (codes for various occupations) with Bureau of Labor Statistics data, CAP estimates that there were 1,790,000 employees in the oil and gas industry in 2011. Of these, 828,000 – or 46 percent – worked at gasoline stations.

Actual Truth: Note that CAP focuses on employees (and is off by 400,000 there), ignoring the word Gerard actually used, “supports.” And CAP ignores that the industry’s job creation extends beyond the industry itself, as Caroline Baum notes:

“Oil-and-gas drilling crews need equipment, food, clothing and lodging. They want to frequent bars and restaurants in the makeshift boom towns sprouting up in areas of North Dakota, Montana, south Texas and Pennsylvania. Manufacturers of drilling equipment need raw materials, such as steel and chemicals. So there’s a natural multiplier effect. Think of it as fiscal stimulus without the government first taking from Peter to give to Paul…Every direct job created in the oil-and-gas extraction industry, for example, yields 2.3 jobs elsewhere in the economy, Franklin says. This is expressed as a multiplier of 3.3, higher than the average of 2 for the 195 industries tracked by the BLS. Petroleum-and-coal product manufacturing (refineries) happens to have the highest multiplier at 8.2. And yes, manufacturing industries are at once the most capital-intensive, the most productive and still have the biggest spillover effect when it comes to generating jobs.”

Back to CAP:

CLAIM: “Raising taxes will not lower energy prices for American families and businesses — in fact, the Congressional Research Service says this plan could cause gasoline prices to go higher.” – Jack Gerard, API President and CEO, March 26, 2012

TRUTH: A Congressional Research Service memo, “Tax Policy and Gasoline Prices” to Sen. Harry Reid (D-NV) determined that eliminating tax breaks for big oil companies would have little impact on the price of gasoline.

Actual Truth: So CAP is rebutting our use of a CRS report from March 2012 by quoting from a CRS memo from last year? But since CAP brings it up, here’s what that earlier CRS memo said: 

“… if the changes in taxes did impact domestic, or overseas exploration and development activity, that does not necessarily imply that less oil would be available in the U.S. market. More might be imported, with little or no effect on gasoline prices.”

In other words (which CAP apparently endorses), don’t worry – we can just import more!

More CAP:

CLAIM: The administration “says it is for natural gas, but 10 federal agencies are looking at new regulations that could needlessly restrict it.” – Jack Gerard, API President and CEO, March 7, 2012

TRUTH: Nothing of the sort is underway.  Minority staff of the House Energy and Commerce Committee thoroughly investigated this claim, and debunked it.

“In a fact sheet supporting the 10-agency assertion, API lists numerous agencies that don’t even have legal authority to regulate hydraulic fracturing...”

Actual Truth: Um, that is sort of exactly our point – that a number of agencies with no business regulating hydraulic fracturing are jumping on the regulation bandwagon.

CAP:

CLAIM: “The industry receives not ONE subsidy, and it is one of the largest contributors of revenue to our government of any industry in America.” – Jack Gerard, API President and CEO, February 23, 2012

TRUTH: Numerous Republican leaders have noted that a tax break is the same as a direct government or subsidy, in a different form.  This includes President Ronald Reagan’s chief economic advisor, Martin Feldstein, former Senate Budget Committee Chair Pete Domenici (R-NM), House Ways and Means Committee Chair Dave Camp (R-MI), and Speaker of the House John Boehner (R-OH).

Feldstein: “These tax rules — because they result in the loss of revenue that would otherwise be collected by the government — are equivalent to direct government expenditures.”

Domenici: “Many tax expenditures substitute for programs that easily could be structured as direct spending. When structured as tax credits, they appear as reductions of taxes, even though they provide the same type of subsidy that a direct spending program would…”

Camp: “‘Tax expenditures’ [are] provisions that technically reduce someone’s tax liability, but that in reality amount to spending through the tax code.”

Boehner: “What Washington sometimes calls tax cuts are really just poorly disguised spending programs.”

Actual Truth: Each in turn: There’s no loss of revenue for the government (Feldstein), they’re not tax credits (Domenici), they don’t reduce tax liability (Camp), and they’re not tax cuts (Boehner). See above.

And lastly:

CLAIM: “Oil production on federal lands is flat, and oil production on federally controlled offshore areas is down.” – API, “Energy Myths and Facts”, 2012

TRUTH: The Energy Information Administration reports that 3.7 quadrillion BTUs of energy from crude oil were produced from federal lands and waters in 2011. This is a 12 percent increase over the 3.3 quadrillion BTUs produced in 2008 under President George W. Bush. It is also more than was produced from federal lands and waters in 2006 and 2007.

Actual Truth: Interestingly, they really are into comparing 2011 to 2008, 2007 and 2006. Let’s have a look:

2011 doesn’t look so pretty now.  Especially compared to where we should be in some areas:

So, sorry CAP, your debunking is mostly just bunk. And speaking of bunk, here is what our current energy policy looks like, with all of its self-imposed limitations. Not bunk is what actual American progress looks like.

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.